Twitter monthly usage drops, company warns it will fall again

NEW YORK, Oct 25 (Reuters) - Twitter Inc on Thursday reported a larger-than-expected decline in monthly users in the third quarter, its second straight quarterly drop, and predicted the figure will fall again in the current period.

The company posted revenue and profit ahead of Wall Street estimates though as advertising sales surged 29 percent.

It blamed the declines in users on efforts to clean up the site from suspicious users, including accounts used in political influence operations, as well as its response to new privacy regulations in the European Union.

Monthly active users fell to 326 million in the third quarter, below the average analyst forecast of 331.5 million, according to FactSet. Twitter said it expects them to drop below 326 million in the current quarter, missing the average forecast of 333.4 million.

Twitter is fighting for its reputation by cutting and blocking fake users, but the toll on traffic is undermining faith in is ability to grow. Recent business progress has focused on getting current users to click on more ads, which has helped Twitter turn to a profit.

Analysts have warned that Twitter needs to stem declines in user growth so it can better compete for ad spending with rivals including Alphabet Inc’s Google, and Facebook Inc . Investors pay close attention to monthly user data because it is seen as a key indicator of future revenue, the bulk of which comes from ad sales.

Twitter’s usage has been stagnant for more than a year, causing analysts to worry that growth may have peaked.

“The lack of meaningful user growth in the last 18 months lends credence to the thesis that Twitter has maxed out on users,” SunTrust Robinson Humphrey analyst Youssef Squali said in an earnings preview note to clients.

Those concerns have been somewhat offset by increases in advertising sales from video which suggest the company is succeeding in efforts to generate more cash from each user.

Quarterly advertising revenue jumped 29 percent from a year earlier to $650 million, boosted by advertiser interest broadcasts from media companies including Live Nation Entertainment, Major League Baseball and Major League Soccer.

That helped push revenue up 29 percent from a year earlier to $758 million, handily beating the average analyst estimate $702.6 million. The company reported adjusted profit of 21 cents per share, beating the average forecast of 14 cents.

Investors are looking to understand the financial impact of Twitter’s moves to clean up its platform by deleting accounts used for fraud, hate speech and election interference.

Twitter has removed millions of suspicious accounts this year including those that belong to Alex Jones and his conspiracy site Infowars.

“We’re doing a better job detecting and removing spammy and suspicious accounts at sign-up,” Chief Executive Jack Dorsey said in a statement.

Twitter said the number of its daily active users rose by 9 percent year-on-year, weaker than an 11 percent jump in the previous quarter and its slowest growth rate in two years. The company does not disclose the total number of daily users.

Twitter shares tumbled 19 percent when the company reported quarterly results on July 27. Its stock has fallen 36 percent since that earnings report, compared to a 6.4 percent decline in the S&P 500 index.

Of the 40 analysts polled by FactSet, 10 have a buy rating on the stock while 24 have a hold rating. Six have a sell rating. The average target price is at $32.91, about 16 percent higher Tuesday’s close of $27.54. (Reporting by Angela Moon Editing by Jim Finkle)